RBI will keep repo rate unchanged amid currency volatility and bond yield pressure: SBI report

The Reserve Bank of India’s Monetary Policy Committee (MPC) in its policy announcement scheduled for Friday is likely to maintain status quo on repo rate amid ongoing global economic uncertainty, pressure on government bond yields and volatility in the domestic currency, a State Bank of India report said.

The report said that despite earlier policy rate easing, the central bank will maintain interest rates this time as several macroeconomic and global factors continue to pose challenges. It found that government bond yields have hardened persistently in recent periods, even after an easing of policy rates.

According to the report, the effectiveness of Open Market Operations (OMOs) can be influenced by the choice of eligible securities, even if the overall volume of liquidity injection remains unchanged. This, the report said, could limit the transmission of monetary policy measures, so SBI said that “RBI is thus likely to maintain the status quo in the policy ahead”.

Since the last policy meeting, one of the key developments has been the finalization of the EU-India and US-India trade agreements, which have led to a sharp reduction in tariffs on Indian goods, from 50 percent to 18 percent. The report highlighted that India now has among the lowest tariffs among Asian countries, which is expected to support export competitiveness and improve trade prospects.

However, the report warned that the global economy remains uncertain. It noted that the Geo-Economics Stress Index indicates that increased uncertainty leads to economic stress with a lag of three to four months, indicating that risks may emerge in the short term.

On the commodities front, the report noted that metal prices have recovered after a significant sell-off last week, adding another layer of complexity to the inflation and growth outlook. The report also noted that labor market slack, stagnant real disposable incomes and a reduced inflation impact could prompt interest rate cuts by the US Federal Reserve in the coming period, which could impact global capital flows and currency movements.

Against this backdrop, the Indian rupee has remained volatile, fluctuating between 89 and 92 per dollar over the past two months. The currency has depreciated 5.8 percent against the US dollar since April 2, 2025, when the US announced sweeping tariff increases across economies. However, the rupee appreciated significantly more than Re 1 after the India-US trade deal, which saw tariffs reduced to 18 percent.

On inflation, the report said that new CPI weights, with the domestic inflation index unchanged, indicate a marginal increase in headline CPI by 20-30 basis points. However, in months when food inflation is higher, the new CPI could be 20 to 30 basis points lower.

Given these mixed signals, the report concluded that the RBI is likely to maintain a cautious stance and leave the policy rate unchanged. The RBI’s MPC meeting will last for three days, from February 4 to 6, and the policy outcomes will be announced on Friday, February 6.

Published on February 5, 2026